How Can I Buy a House With Bad Credit?

Get a copy of your credit file from Experion, TransUnion and Equifax. You are allowed one free copy per year, according to federal credit rules. Look over the three reports, checking for errors, old accounts more than seven years old, or open accounts that were paid and closed. Get these removed as quickly as possible; this alone will raise the credit score. Look at the overall credit score from each report; average credit is between 600 to 700, poor credit is in the low 600 range while bad credit is in the 500 range and below. If you have a credit score in the 600s, you can still get loans although it will be difficult.

Determining How Bad is Bad Credit

Get a copy of your credit file from Experion, TransUnion and Equifax. You are allowed one free copy per year, according to federal credit rules. Look over the three reports, checking for errors, old accounts more than seven years old, or open accounts that were paid and closed. Get these removed as quickly as possible; this alone will raise the credit score. Look at the overall credit score from each report; average credit is between 600 to 700, poor credit is in the low 600 range while bad credit is in the 500 range and below. If you have a credit score in the 600s, you can still get loans although it will be difficult.

Cleaning Up Bad Credit

Pay off all small outstanding balances that can reduce up to half of your credit file. Close up revolving lines of credit, store charge balances and other open accounts. Pay off any old utility bills showing on the reports. Make arrangements to start payment plans for the medium range amounts which are below $1,000. Get the creditors to report that the accounts are in the process of being paid. Get letters from creditors that have been paid off stating they have reported the fact to the credit bureaus. These steps will take more than a year to show up on your credit file. Check each year to see what has been removed and what needs to be removed.

Exceptions and Exemptions

Start a savings account at a bank while working on the credit file. Get into the habit of depositing regular amounts each week or month to show an effort to build up liquidity for a down payment. Get credit approval before shopping for the house; this act will tell you how much you have to work with and what you can safely afford. Look for housing which is LESS than the amount approved so you have a cushion. Write a detailed explanation letter which defines your credit situation and how you are working to resolve the problems. Give this letter to underwriters to help gain credit approval. Ask for an "exception" loan which is a loan granted for people who have marginal credit but good reason for being at that line. Make sure the explanation letter is part of the request.

HUD

Look into programs run by the U.S. Department of Housing and Urban Development (HUD). These are loan programs used to insure loan repayment to financial lenders; this provides protection to the lender against possible default of the loan. HUD also has programs for families that are below standard credit risk as long as they can provide a 3 percent down payment and the costs of closing. Look at the requirements to qualify for HUD assistance before approaching lenders.